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Scotland confirms demise of ‘outdated’ SDLT

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13th Oct 2014
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Tax professionals have welcomed confirmation of the Scottish government’s decision to abolish the “slab system” used to fix stamp duty land tax (SDLT) rates, but observed that the land and buildings transaction tax (LBTT) set to replace SDLT next year could be seen as creating a Scottish “mansion tax”.

The Scottish government proposed a  progressive tax structure when it introduced the Land and Buildings Transaction Tax (Scotland) Bill in 2012. The Bill received Royal Assent last year.

Scotland’s finance secretary John Swinney said in his Draft Budget on 9 October that the LBTT, which will have marginal rates of up to 12%, would deliver “fair taxes set in line with the priorities of the people of Scotland”.

Swinney said: “The [LBTT] is the first tax created by the Scottish Parliament in 300 years. We now have the chance to apply the principles set out by Adam Smith – that there must be certainty, convenience for the taxpayer and efficiency of tax collection and … that taxes should be proportionate to the ability to pay.

“The old stamp duty was outdated – causing unfair tax hikes at set property prices. This led to the market being distorted and led people to try to avoid tax. Our proposed residential transaction rates will be more proportionate to the house price, and means that the tax is fairer as it is based more closely on the buyer’s ability to pay.”

The proposed rates and bands are set out in a factsheet published last week. Ninety per cent of homebuyers “will either pay less or the same amount as they would under current arrangements”. The Draft Budget proposals are subject to the Scottish Parliament’s approval in early 2015.

Incentives to ‘game the system’

Moira Kelly, chair of the Chartered Institute of Taxation’s Scottish Taxes Committee, said SDLT created huge “cliff edges” at particular property values. “For example under the current system someone buying a property for £125,000 pays no tax while someone buying a property for £125,001 pays £1,250; someone buying a property for £250,000 pays £2,500 in tax while someone buying a property for £250,001 pays three times as much.”

This produced “huge incentives to ‘game the system’ over the years by claiming exaggerated values for fixtures and fittings”, she said. “All those involved in Scottish property sales should be relieved to see the back of that crazy system, though it will of course stay in place for the rest of the UK.”

Progressive

Kelly said the other “big story” was how much more progressive the new Scottish system will be. “Those paying under £325,000 for a property will pay less and those paying more than that will pay more, in some cases much more. Many will see this as a Scottish ‘mansion tax’,” she said.

KPMG’s head of UK stamp taxes, Sean Randall, said last week’s announcement was likely to stimulate “significant sales of higher-value properties” in the run-up to next April.

The Financial Times reported that the tax rates provoked “much criticism” from Scottish Conservatives, who “denounced them as a ‘raid on families’ and an ‘assault on aspiration’”, and quoted  Susie Walker, head of tax at chartered accountants Johnston Carmichael, as saying they were “way above what we expected at the top end”.

Landfill tax

Scottish landfill tax will replace UK landfill tax in Scotland from 1 April 2015. The Draft Budget proposed a standard rate of £82.60 per tonne of taxable waste and a lower rate of £2.60, matching the planned UK landfill tax rates set out in Finance Act 2014.

‘Historic’

A Guardian leader noted that Swinney’s announcement hardly compared with the independence for which the Scottish National Party had campaigned, but it was “historic”.

For the first time since the Acts of Union in 1707, it said, the Scottish parliament had been asked to take a revenue-raising decision. “Politically and fiscally, that is an important moment. It is a crossing of the Rubicon – or, more appropriately, of the Tweed.”

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Replies (2)

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By RFL H
13th Oct 2014 14:46

Is this level of progression indicative?

Does anyone think this progression is indicative of what they will do with income tax?

Over £500k at 10% compared to 4% in the rest of the UK implies they may be thinking anyone earning over £150k should pay income tax at close to 100% on the margin.

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By ShirleyM
13th Oct 2014 18:24

Game the system?

This produced “huge incentives to ‘game the system’ over the years by claiming exaggerated values for fixtures and fittings”, she said. “All those involved in Scottish property sales should be relieved to see the back of that crazy system, though it will of course stay in place for the rest of the UK.”

Won't gaming still happen? Is there something in the new legislation to stop this happening, or do they think buyers will be less likely to negotiate a higher cost of the fixtures & fittings, and a lower cost for the property? If they do this to avoid 4% SDLT then what's the chance of them paying 10% LBTT without trying to reduce it?

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